[Federal Register Volume 60, Number 229 (Wednesday, November 29, 1995)]
[Notices]
[Pages 61275-61276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29149]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36504; File No. SR-PSE-95-18]


Self-Regulatory Organizations; Pacific Stock Exchange, Inc.; 
Order Approving a Proposed Rule Change Relating to Increased Position 
and Exercise Limits on the PSE Technology Index

November 22, 1995.
    On August 21, 1995, the Pacific Stock Exchange, Inc. (``PSE'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to increase the existing position 
and exercise limits for options on the PSE Technology Index 
(``Technology Index'' or ``Index'') and change the terms of option 
contracts overlying the Index from closing price (p.m.) settlement to 
opening price (a.m.) settlement.

    \1\15 U.S.C. 78s(b)(1) (1988 & Supp. V 1993).
    \2\17 CFR Sec. 240.19b-4 (1994).
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    Notice of the proposed rule change was published for comment and 
appeared in the Federal Register on August 31, 1995.\3\ No comments 
were received on the proposal. The portion of the filing relating to 
a.m. settlement of Technology Index options was approved by the 
Commission and appeared in the Federal Register on September 21, 
1995.\4\ This order approves the remaining portion of the filing 
relating to increased position limits.

    \3\See Securities Exchange Act Release No. 36146 (August 23, 
1995), 60 FR 45509.
    \4\See Securities Exchange Act Release No. 36236 (Sept. 14, 
1995), 60 FR 49031.
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I. Description of the Proposal

    On November 26, 1991, the Commission approved an exchange proposal 
to re-classify the Technology Index as a broad-based index for position 
limit and customer margin purposes.\5\ The Index is price-weighted and 
comprised of 100 stocks that are intended to represent a broad spectrum 
of companies principally engaged in manufacturing and service-related 
products within advanced technology fields.\6\ The PSE currently lists 
European-style,\7\ a.m. settled\8\ options based on the Index.

    \5\Securities Exchange Act Release No. 29994, 56 FR 63536 (Dec. 
4, 1991). The Commission initially approved options trading on the 
Index in November 1983. See Securities Exchange Act Release Nos. 
20424, 48 FR 54557 (Dec. 5, 1983); and 20499, 48 FR 58880 (Dec. 23, 
1983).
    \6\On September 12, 1995, the PSE reduced the value of the 
Technology Index from 420.54 to 210.27. Options on the Index 
commenced trading on September 18, 1995.
    \7\A European-style option may only be exercised during a 
specified period prior to expiration.
    \8\A.M. settlement methodology utilizes opening market prices 
for the underlying securities rather than closing market prices.
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    The Exchange is proposing to set new position and exercise limits 
for options on the Index at 37,500 contracts on the same side of the 
market (versus the current 15,000 contract level), with no more than 
22,500 of such contracts in the series with the nearest expiration 
date. The Exchange has compared the Index with indexes traded on other 
exchanges and believes, based on such data, that the proposed position 
and exercise limits are consistent with the existing limits for broad-
based index option contracts traded at the other exchanges.\9\

    \9\The Exchange has compared the Index to the following indexes: 
Russell 2000 Index, S&P 400 Index, S&P 600 Index, Wilshire Small-Cap 
Index and National Over the Counter Index.
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II. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, the requirements of Section 6(b)(5),\10\ in particular, in 
that it should help remove impediments to and perfect the mechanism of 
a free and open market, promote just and equitable principles of trade 
and protect investors and the public interest. Specifically, the 
Commission believes that the PSE's proposal to increase position and 
exercise limits on the Technology Index to 37,500 contracts could 
increase the depth and liquidity of the Technology Index options 
market\11\ without significantly increasing concerns regarding 
intermarket manipulations or disruptions of the market for the options 

[[Page 61276]]
or the underlying securities. Markets that exhibit active and deep 
trading, as well as broad public ownership, are more difficult to 
manipulate or disrupt than less active markets with smaller public 
floats. In this regard, the Technology Index is a broad-based price-
weighted index consisting of 100 actively traded technology stocks in 
the U.S. Accordingly, given the size and breadth of the Index, the 
Commission believes that increasing position limits to 37,500 contracts 
will not significantly increase any manipulative concerns. In addition, 
the Exchange's surveillance program will continue to be applicable to 
the trading of Technology Index options and should detect and deter any 
potential trading abuses arising from the increased position and 
exercise limits.

    \10\15 U.S.C. 78f(b)(5) (1982).
    \11\The increase in position limits could increase market depth 
and liquidity by giving institutional investors wider latitude in 
trading to manage their portfolios.
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    The Exchange submitted data comparing the Technology Index to 
several other broad-based indexes, including the Russell 2000 Index, 
Standard & Poor's 400 and 600 Indexes, the Wilshire Small Cap Index and 
the National Over-the-Counter Index. The Commission believes that the 
comparative data confirms that the proposed Technology Index position 
limits of 37,500 contracts are similar to those of the other options 
exchanges on similar indexes. For example, as of September 22, 1995, 
the S&P 400 Index had an index value of 214.46 and position limits of 
45,000 contracts, creating a maximum attainable position of 
approximately $970 million.\12\ As of the same date, the Technology 
Index proposed position and exercise limits of 37,500 contracts had a 
maximum attainable position of $773 million.\13\

    \12\This figure is attained from multiplying the index value 
times the position limit times the 100 multiplier (215.46  x  45,000 
 x  100).
    \13\206.28  x  37,500  x 100. The Commission notes that it may 
be appropriate for position and exercise limits on certain price-
weighted indexes to be somewhat lower than the limits for similarly 
constructed capitalization-weighted indexes.
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    It therefore is ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-PSE-95-18) relating to 
increased position and exercise limits on the Technology Index is 
approved.

    \14\15 U.S.C. 78s (b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\

    \15\17 CFR Sec. 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-29149 Filed 11-28-95; 8:45 am]
BILLING CODE 8010-01-M